During these last few days, weeks, perhaps even months of higher volatility than we're accustomed to, I know that you're concerned. You should know I'm concerned even if we don't show it here all the time, what we're seeing in the market certainly gets our attention. However, I think it's important to understand that volatility (in periods like we're going through now) is normal and should be expected. In spite of the fact that we all expect it, or understand it, when we see inflation at eight and a half percent and a war in Ukraine, those events do get our attention and do make us worry.
**Commentary mentioned in the YouTube video is below in plain text**
So, the first thing we have to understand is the market is adjusting to a sudden onset of inflation. It wasn't gradual. It suddenly appeared, and because most of us haven't really had to deal with inflation of greater than 1%- 2%, which we, by the way, call disinflation. It's not deflation, it's disinflation in the sense that the rate would be less than what we've become accustomed to. That period of disinflation which began in 1981, roughly didn't end until last year. So we had 40 years (approximately) of disinflation where it was never a problem, not anything to be concerned about.
As a matter of fact, some say that an inflation rate of 1%-2% is healthy for the economy. Well, we've moved beyond that. We're at 8.5%. Stocks don't like it. Bonds don't like it, and we as human beings, investors, aren't accustomed to it. We don't know how to act.
I think before this is over, we'll know how to act. We'll adjust to inflation and deal with it the way I did in my early career. Now the other part of this from an investment point of view is clear. We have to invest a little differently. We have to be understanding of real returns.
Now, the other part of it is, what do we do as consumers? If the price of goods and services goes up by an average of 8.5%, it doesn't mean your inflation is 8.5%. It might be higher. It might be lower, but it's high in general. The only way we can deal with that is recognize we spend less, we redeploy the way we spend our money or we lose to inflation in the long run.
Now, the way we cope and the way I think a lot of people are coping right now, is to look at a fairly good balance sheet. We have and we look at income. We take assets (saved assets) and we take earnings that we've made in previous years and we consume them. We use them, and that will work in the short run. But in the long run, we've got to keep up with inflation and we must cut our expenses everywhere. There is no other alternative.
Now, inflation specifically, we don't expect that it will continue at eight plus percent, but we do expect that it will continue at a higher-than-average rates, which means more than three and a quarter/three and a half percent. So we anticipate inflation will go down, but not enough to really matter in terms of the way we're investing.
Now I mention my book because, we have to be careful that we're investing ahead into the future as the title mentions because if we allow our current feelings and emotions to drive what we do, it's not likely to work. That would be the emotional approach. It will make us sleep better at night, but I assure you, you may sleep better tonight by doing it that way, but in five to ten years you may not sleep at all because of the consequences of trying to avoid and take steps which aren't going to work over time!
So, try to look at it from the point of view of where do we want to be in five years? You have to remember that declines in the stock market are temporary. The wars are temporary, and we have to make sure that we don't make permanent decisions as a result of getting frightened by temporary events. We have to look past them.
Best,
Founder and Co-CEO of Curran Wealth Management
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